var TRINITY_TTS_WP_CONFIG={“cleanText”:”Sam Bankman-Friedu2019s lawyers botch cross-examination of Caroline Ellison.u23f8Try as they mightu2014and they werenu2019t trying all that hardu2014attorneys representingu00a0Sam Bankman-Friedu00a0(SBF) didnu2019t lay a glove onu00a0Caroline Ellisonu00a0during her appearance at her former boss/paramouru2019s criminal trial.u23f8Thursday saw a full day of cross-examination for Ellison, ex-CEO ofu00a0Alameda Research, the market-maker for SBFu2019su00a0FTXu00a0digital assets exchange. SBFu2019s legal team had no shortage of material to work with, as prosecutors had coaxed a series ofu00a0jaw-dropping revelationsu00a0during their direct examination of Ellison.u23f8Wednesdayu2019s juiciest moments included Ellison relating how, in November 2021, SBF directed Alameda staff to pay $150 millionu2014nearly 4x the $40 million previously described in the Department of Justiceu2019s (DOJ)u00a0superseding indictmentu00a0of SBFu2014to unspecified Chinese government officials to unfreeze around $1 billion in digital assets that were trapped on two China-based exchanges (Huobiu00a0andu00a0OKX).u23f8This elaborate processu2014which also included Alamedau2019s other co-CEOu00a0Sam Trabuccou2014involved using the IDs of u201cThai prostitutesu201d to open new accounts on Huobi/FTX to try to unstick the stuck assets. This episode was later obliquely referred to as u2018the thingu2019 on FTX/Alamedau2019s internal documents.u23f8Ellison also claimed that SBF directed her to prepare as many as seven different versions of theu00a0infamous Alameda balance sheetu00a0that was later leaked and sparked FTXu2019s downfall. Incredibly, the version that leaked actuallyu00a0understatedu00a0Alamedau2019s liabilities by billions of dollars.u23f8One of these balance sheets was sent tou00a0Genesis Global Capital, the u2018cryptou2019 lending arm ofu00a0Barry Silbertu2019su00a0Digital Currency Groupu00a0(DCG), a major Alameda creditor. SBF allegedly warned Ellison not to send an accurate balance sheet to Genesis based on fears that the lender might (a) call in its loans if it knew the dire state of things or (b) leak the information. Genesis has previously been flagged as au00a0possible leakeru00a0of the balance sheet it received from Alameda, which was selected by SBF from the seven versions Ellison prepared.u23f8Ellisonu00a0testifiedu00a0that SBF had related a conversation heu2019d had with Matthew Ballensweig, Genesisu2019 then-managing director. Ballensweig allegedly told SBF that Genesisu2019s lending partners wanted their money back and Genesis u2018might go underu2019 unless Alameda returned $500 million of the money Genesis had lent Alameda. (The money was sentu2014part of a total of $4 billion in loans and collateral Genesisu00a0managed to successfully extract from Alamedau2014but Genesis stillu00a0went bankruptu00a0shortly after FTX did.)u23f8Ellison also related how, as FTXu2019s financial situation worsened, SBF plotted ways of u201cgetting regulators to crack downu201d on rival exchangeu00a0Binance. In addition to SBF having a grudge against Binance founderu00a0Changpeng u2018CZu2019 Zhao, SBF believed a crackdown might leave Binanceu2019s customers adrift, creating an opportunity for FTX to acquire themu2014along with their digital assets and thus paper over the holes in FTX/Alamedau2019s books.u23f8Finally, as the good ship FTX was floundering, SBF came up with a plan to raise $1 billion in additional capital from Saudi Arabiau2019s Crown Prince Mohammed bin Salman (MBS). Given MBSu2019s role in theu00a0murder of Washington Post journalist Jamal Khashoggi, SBF can count his lucky stars that he didnu2019t end up stiffing the vengeful monarch.u23f8SBFu2019s team isnu2019t sending their bestu23f8Asu00a0live-tweetedu00a0by Inner City Press, SBFu2019s team began their Thursday grilling of Ellison with a meandering series of questions regarding her co-workers and the nature of the business.u23f8https://twitter.com/innercitypress/status/1712461930424631499u23f8As on previous days in this trial, a weary U.S. District Court Judge, Lewis Kaplan, admonished SBFu2019s attorneys to stop asking questions that prosecutors had already asked various witnesses. Kaplan also informed SBFu2019s attorney, Mark Cohen, that heu2019d u201cnever seen the cross of a cooperator done like this.u201d Itu2019s been suggested that SBF is already angling for a mistrial based on (a) Kaplanu2019s hostility or (b) the ineptness of his own counsel. At this point, our money is on the latter.u23f8On Wednesday, Ellison revealed that by June 2022, Alameda had borrowed 77% of all FTX customer deposits for its own purposes, including 52% of allu00a0ETHu00a0held on FTX, 44% of the USDT (Tether)u00a0stablecoinu00a0and 25% of theu00a0BTC. Alameda also claimed all Australian dollars and BRZ (a token linked to Brazilu2019s fiat currency).u23f8On Thursday, Ellison was presented with a document apparently detailing an internal conversation in which she suggested to another staffer that SBF u201cmight not have knownu201d about the extent to which Alameda had u2018borrowedu2019 FTX customer funds. Prosecutors objected to the vagueness of this statement, suggesting it needed further explanation, but SBFu2019s team simply dropped the matter and moved on to its next line of inquiry.u23f8Ellison also revealed that Alameda lost $100 million whenu00a0Terraform Labsu2019 algorithmic stablecoinu00a0USTu00a0andu00a0LUNAu00a0token abruptlyu00a0tanked in spring 2022u00a0(ultimately leading to the demise of SBFu2019s empire and much of the broader u2018cryptou2019 sector).u23f8How many martinis did they have?u23f8Following a lunch break, SBFu2019s team continued its scattershot approach, quizzing Ellison on numerous issues but never drilling down deep enough into any one subject to land any serious blows.u23f8Before FTX went belly-up, SBF invested $400 million into Bahamas-based hedge fund Modulo Capital, which was run by another of SBFu2019s ex-girlfriends. In a document shown in court, SBF told execs at both Modulo and Alameda to quit bickering with each other. SBF reminded them that they should be u201calways doing what is best for the company,u201d implying that Alameda, Modulo, and FTX were a single entity. SBF added that they should be u201ctreating all dollars the same,u201d whether those dollars belonged to Alameda, Modulo, or FTX (or its customers).u23f8On Thursday, Ellison was asked if it was true that she wanted to u201ccrushu201d Modulo, and she said she remembered u201chaving feelings like that.u201d Ellison said she u201cdidnu2019t think it made senseu201d for FTX to be investing $400 million in Modulo.u23f8The court previously heard that, toward the end, SBF had considered shutting down Alameda and having Modulo take its place. Itu2019s almost as if SBFu2019s team is now trying to make Ellison out to be a scorned woman whou2019d tank the whole operation rather than see her ex make goo-goo eyes at another woman. In reality, SBFu2019s team is likely convincing the jury that his people skills are even worse than they suspected.u23f8Prosecutors conducted a brief redirect, including asking Ellison whether she believed FTX collapsed as a result of Binanceu2019s CZ tweetingu00a0his intention to unload all of his FTTu00a0(FTXu2019s illiquid in-house token) following the leak of that Alameda balance sheet. Ellison said the tweet u201ccontributedu201d to FTXu2019s downfall, but u201cthe main reason was Alameda borrowing $10 billion from FTX it couldnu2019t repay.u201d (Rimshot!)u23f8https://twitter.com/cz_binance/status/1589283421704290306u23f8Ellisonu2019s appearance was followed by former Alameda engineer Christian Drappi, who didnu2019t offer much significance to either side during his few minutes on the stand. Drappi was followed by Zac Prince, founder/ex-CEO of digital asset lenderu00a0BlockFi, which went bankrupt last November despite SBF pretending for a while to be itsu00a0white knight. Prince had only just sat down when Judge Kaplan called time, meaning the world would have to wait until Friday to hear his story.u23f8FTX hackers Russia-based?u23f8As SBFu2019s trial approached, blockchain sleuths observed significant movements in the hundreds of millions of dollars worth of tokens that were u2018hackedu2019 from FTX in the immediate aftermath of its bankruptcy. In late September, wallets linked to the u2018FTX Exploiteru2019 that had lain dormant for nearly a year suddenly beganu00a0moving significant quantities of ETH. By October 6, around $124 million worth of this ETH had beenu00a0swapped for BTCu00a0and moved off-chain.u23f8Shortly after the FTX hack, some of the stolen assets were observed flowing intou00a0ChipMixer, an online tool thatu00a0obfuscates the history of tainted tokensu00a0by mixing them with tokens with a more u2018cleanu2019 history. ChipMixer was taken down in March following a joint operation by German and U.S. authorities after helping to launder around u20ac2.73 billion over its six years of operation.u23f8On Thursday,u00a0CoinDesku00a0reported that Elliptic analysts believed that u201csignificant amountsu201d of the FTX tokens had been u201ccombined with funds from Russia-linked criminal groups, including ransomware gangs and darknet markets, before being sent to exchanges.u201du23f8Cleanup in aisle fouru23f8The November 2022 hack wasnu2019t the first time SBFu2019s operations had been compromised for millions. In August, former Alameda engineer Aditya Baradwaj began something ofu00a0a public confessionalu00a0on his Twitter/X feed, relating his initial experiences working at Alameda when it was still based in Berkeley. Baradwaj noted a distinct pattern ofu00a0u201cirresponsibilityu201du00a0at Alameda, including u201ccareless risk management for a company handling billions of dollars in capital.u201du23f8Baradwaj detailed a number of theseu00a0embarrassing shortcomings, leading to a thread this week on Alamedau2019su00a0u201cpoor security practicesu201du00a0that led to the loss of u201chundreds of millions of dollars.u201d This included an Alameda trader clicking on a phishing link while trying to complete a decentralized finance transaction that cost Alameda u201c$100M+.u201du23f8An attempt at u201cyield farming on a new blockchain of questionable legitimacyu201d led to the blockchain creator u201cholding our funds hostage,u201d resulting in a u201c$40M+u201d loss. Another incident was u201clikelyu201d sparked by a former employee leaking an u201cold version of our plaintext keys fileu201d that allowed an attacker to transfer funds without authorization, with the damage estimated at u201c$50M+.u201du23f8Baradwaj claimed these cockups were largely the result of SBF prioritizing speed of action over security. This meant u201cvirtually no code testing and incomplete balance accounting[.] Safety checks for trading would only be added on an as-needed basis[.] Blockchain private keys and exchange API keys were stored in plaintext in a file that several employees could accessu201d.u23f8Even after nearly $200 million in losses, Baradwaj said SBF appeared to take it as the cost of doing business, given that there was u201cno serious attempt was made to change the way we operated.u201d Itu2019s almost as if SBFu2019s whole u2018boy geniusu2019 schtick was a fraud. Funny, that.u23f8Followu00a0u2019s Crypto Crime Cartelu00a0series, which delves into the stream of groupu2014fromu00a0BitMEXu00a0tou00a0Binance,u00a0Bitcoin.com,u00a0Blockstream,u00a0ShapeShift,u00a0Coinbase,u00a0Ripple,u23f8 Ethereum,u00a0FTXu00a0andu00a0Tetheru2014who have co-opted the digital asset revolution and turned the industry into a minefield for nau00efve (and even experienced) players in the market.u23f8″,”headlineText”:”Sam Bankman-Friedu2019s lawyers botch cross-examination of Caroline Ellison”,”articleText”:”Try as they mightu2014and they werenu2019t trying all that hardu2014attorneys representingu00a0Sam Bankman-Friedu00a0(SBF) didnu2019t lay a glove onu00a0Caroline Ellisonu00a0during her appearance at her former boss/paramouru2019s criminal trial.u23f8Thursday saw a full day of cross-examination for Ellison, ex-CEO ofu00a0Alameda Research, the market-maker for SBFu2019su00a0FTXu00a0digital assets exchange. SBFu2019s legal team had no shortage of material to work with, as prosecutors had coaxed a series ofu00a0jaw-dropping revelationsu00a0during their direct examination of Ellison.u23f8Wednesdayu2019s juiciest moments included Ellison relating how, in November 2021, SBF directed Alameda staff to pay $150 millionu2014nearly 4x the $40 million previously described in the Department of Justiceu2019s (DOJ)u00a0superseding indictmentu00a0of SBFu2014to unspecified Chinese government officials to unfreeze around $1 billion in digital assets that were trapped on two China-based exchanges (Huobiu00a0andu00a0OKX).u23f8This elaborate processu2014which also included Alamedau2019s other co-CEOu00a0Sam Trabuccou2014involved using the IDs of u201cThai prostitutesu201d to open new accounts on Huobi/FTX to try to unstick the stuck assets. This episode was later obliquely referred to as u2018the thingu2019 on FTX/Alamedau2019s internal documents.u23f8Ellison also claimed that SBF directed her to prepare as many as seven different versions of theu00a0infamous Alameda balance sheetu00a0that was later leaked and sparked FTXu2019s downfall. Incredibly, the version that leaked actuallyu00a0understatedu00a0Alamedau2019s liabilities by billions of dollars.u23f8One of these balance sheets was sent tou00a0Genesis Global Capital, the u2018cryptou2019 lending arm ofu00a0Barry Silbertu2019su00a0Digital Currency Groupu00a0(DCG), a major Alameda creditor. SBF allegedly warned Ellison not to send an accurate balance sheet to Genesis based on fears that the lender might (a) call in its loans if it knew the dire state of things or (b) leak the information. Genesis has previously been flagged as au00a0possible leakeru00a0of the balance sheet it received from Alameda, which was selected by SBF from the seven versions Ellison prepared.u23f8Ellisonu00a0testifiedu00a0that SBF had related a conversation heu2019d had with Matthew Ballensweig, Genesisu2019 then-managing director. Ballensweig allegedly told SBF that Genesisu2019s lending partners wanted their money back and Genesis u2018might go underu2019 unless Alameda returned $500 million of the money Genesis had lent Alameda. (The money was sentu2014part of a total of $4 billion in loans and collateral Genesisu00a0managed to successfully extract from Alamedau2014but Genesis stillu00a0went bankruptu00a0shortly after FTX did.)u23f8Ellison also related how, as FTXu2019s financial situation worsened, SBF plotted ways of u201cgetting regulators to crack downu201d on rival exchangeu00a0Binance. In addition to SBF having a grudge against Binance founderu00a0Changpeng u2018CZu2019 Zhao, SBF believed a crackdown might leave Binanceu2019s customers adrift, creating an opportunity for FTX to acquire themu2014along with their digital assets and thus paper over the holes in FTX/Alamedau2019s books.u23f8Finally, as the good ship FTX was floundering, SBF came up with a plan to raise $1 billion in additional capital from Saudi Arabiau2019s Crown Prince Mohammed bin Salman (MBS). Given MBSu2019s role in theu00a0murder of Washington Post journalist Jamal Khashoggi, SBF can count his lucky stars that he didnu2019t end up stiffing the vengeful monarch.u23f8SBFu2019s team isnu2019t sending their bestu23f8Asu00a0live-tweetedu00a0by Inner City Press, SBFu2019s team began their Thursday grilling of Ellison with a meandering series of questions regarding her co-workers and the nature of the business.u23f8https://twitter.com/innercitypress/status/1712461930424631499u23f8As on previous days in this trial, a weary U.S. District Court Judge, Lewis Kaplan, admonished SBFu2019s attorneys to stop asking questions that prosecutors had already asked various witnesses. Kaplan also informed SBFu2019s attorney, Mark Cohen, that heu2019d u201cnever seen the cross of a cooperator done like this.u201d Itu2019s been suggested that SBF is already angling for a mistrial based on (a) Kaplanu2019s hostility or (b) the ineptness of his own counsel. At this point, our money is on the latter.u23f8On Wednesday, Ellison revealed that by June 2022, Alameda had borrowed 77% of all FTX customer deposits for its own purposes, including 52% of allu00a0ETHu00a0held on FTX, 44% of the USDT (Tether)u00a0stablecoinu00a0and 25% of theu00a0BTC. Alameda also claimed all Australian dollars and BRZ (a token linked to Brazilu2019s fiat currency).u23f8On Thursday, Ellison was presented with a document apparently detailing an internal conversation in which she suggested to another staffer that SBF u201cmight not have knownu201d about the extent to which Alameda had u2018borrowedu2019 FTX customer funds. Prosecutors objected to the vagueness of this statement, suggesting it needed further explanation, but SBFu2019s team simply dropped the matter and moved on to its next line of inquiry.u23f8Ellison also revealed that Alameda lost $100 million whenu00a0Terraform Labsu2019 algorithmic stablecoinu00a0USTu00a0andu00a0LUNAu00a0token abruptlyu00a0tanked in spring 2022u00a0(ultimately leading to the demise of SBFu2019s empire and much of the broader u2018cryptou2019 sector).u23f8How many martinis did they have?u23f8Following a lunch break, SBFu2019s team continued its scattershot approach, quizzing Ellison on numerous issues but never drilling down deep enough into any one subject to land any serious blows.u23f8Before FTX went belly-up, SBF invested $400 million into Bahamas-based hedge fund Modulo Capital, which was run by another of SBFu2019s ex-girlfriends. In a document shown in court, SBF told execs at both Modulo and Alameda to quit bickering with each other. SBF reminded them that they should be u201calways doing what is best for the company,u201d implying that Alameda, Modulo, and FTX were a single entity. SBF added that they should be u201ctreating all dollars the same,u201d whether those dollars belonged to Alameda, Modulo, or FTX (or its customers).u23f8On Thursday, Ellison was asked if it was true that she wanted to u201ccrushu201d Modulo, and she said she remembered u201chaving feelings like that.u201d Ellison said she u201cdidnu2019t think it made senseu201d for FTX to be investing $400 million in Modulo.u23f8The court previously heard that, toward the end, SBF had considered shutting down Alameda and having Modulo take its place. Itu2019s almost as if SBFu2019s team is now trying to make Ellison out to be a scorned woman whou2019d tank the whole operation rather than see her ex make goo-goo eyes at another woman. In reality, SBFu2019s team is likely convincing the jury that his people skills are even worse than they suspected.u23f8Prosecutors conducted a brief redirect, including asking Ellison whether she believed FTX collapsed as a result of Binanceu2019s CZ tweetingu00a0his intention to unload all of his FTTu00a0(FTXu2019s illiquid in-house token) following the leak of that Alameda balance sheet. Ellison said the tweet u201ccontributedu201d to FTXu2019s downfall, but u201cthe main reason was Alameda borrowing $10 billion from FTX it couldnu2019t repay.u201d (Rimshot!)u23f8https://twitter.com/cz_binance/status/1589283421704290306u23f8Ellisonu2019s appearance was followed by former Alameda engineer Christian Drappi, who didnu2019t offer much significance to either side during his few minutes on the stand. Drappi was followed by Zac Prince, founder/ex-CEO of digital asset lenderu00a0BlockFi, which went bankrupt last November despite SBF pretending for a while to be itsu00a0white knight. Prince had only just sat down when Judge Kaplan called time, meaning the world would have to wait until Friday to hear his story.u23f8FTX hackers Russia-based?u23f8As SBFu2019s trial approached, blockchain sleuths observed significant movements in the hundreds of millions of dollars worth of tokens that were u2018hackedu2019 from FTX in the immediate aftermath of its bankruptcy. In late September, wallets linked to the u2018FTX Exploiteru2019 that had lain dormant for nearly a year suddenly beganu00a0moving significant quantities of ETH. By October 6, around $124 million worth of this ETH had beenu00a0swapped for BTCu00a0and moved off-chain.u23f8Shortly after the FTX hack, some of the stolen assets were observed flowing intou00a0ChipMixer, an online tool thatu00a0obfuscates the history of tainted tokensu00a0by mixing them with tokens with a more u2018cleanu2019 history. ChipMixer was taken down in March following a joint operation by German and U.S. authorities after helping to launder around u20ac2.73 billion over its six years of operation.u23f8On Thursday,u00a0CoinDesku00a0reported that Elliptic analysts believed that u201csignificant amountsu201d of the FTX tokens had been u201ccombined with funds from Russia-linked criminal groups, including ransomware gangs and darknet markets, before being sent to exchanges.u201du23f8Cleanup in aisle fouru23f8The November 2022 hack wasnu2019t the first time SBFu2019s operations had been compromised for millions. In August, former Alameda engineer Aditya Baradwaj began something ofu00a0a public confessionalu00a0on his Twitter/X feed, relating his initial experiences working at Alameda when it was still based in Berkeley. Baradwaj noted a distinct pattern ofu00a0u201cirresponsibilityu201du00a0at Alameda, including u201ccareless risk management for a company handling billions of dollars in capital.u201du23f8Baradwaj detailed a number of theseu00a0embarrassing shortcomings, leading to a thread this week on Alamedau2019su00a0u201cpoor security practicesu201du00a0that led to the loss of u201chundreds of millions of dollars.u201d This included an Alameda trader clicking on a phishing link while trying to complete a decentralized finance transaction that cost Alameda u201c$100M+.u201du23f8An attempt at u201cyield farming on a new blockchain of questionable legitimacyu201d led to the blockchain creator u201cholding our funds hostage,u201d resulting in a u201c$40M+u201d loss. Another incident was u201clikelyu201d sparked by a former employee leaking an u201cold version of our plaintext keys fileu201d that allowed an attacker to transfer funds without authorization, with the damage estimated at u201c$50M+.u201du23f8Baradwaj claimed these cockups were largely the result of SBF prioritizing speed of action over security. This meant u201cvirtually no code testing and incomplete balance accounting[.] Safety checks for trading would only be added on an as-needed basis[.] Blockchain private keys and exchange API keys were stored in plaintext in a file that several employees could accessu201d.u23f8Even after nearly $200 million in losses, Baradwaj said SBF appeared to take it as the cost of doing business, given that there was u201cno serious attempt was made to change the way we operated.u201d Itu2019s almost as if SBFu2019s whole u2018boy geniusu2019 schtick was a fraud. Funny, that.u23f8Followu00a0u2019s Crypto Crime Cartelu00a0series, which delves into the stream of groupu2014fromu00a0BitMEXu00a0tou00a0Binance,u00a0Bitcoin.com,u00a0Blockstream,u00a0ShapeShift,u00a0Coinbase,u00a0Ripple,u23f8 Ethereum,u00a0FTXu00a0andu00a0Tetheru2014who have co-opted the digital asset revolution and turned the industry into a minefield for nau00efve (and even experienced) players in the market.u23f8″,”metadata”:{“author”:”Steven Stradbrooke”},”pluginVersion”:”5.7.4″}; |
Try as they might—and they weren’t trying all that hard—attorneys representing Sam Bankman-Fried (SBF) didn’t lay a glove on Caroline Ellison during her appearance at her former boss/paramour’s criminal trial.
Thursday saw a full day of cross-examination for Ellison, ex-CEO of Alameda Research, the market-maker for SBF’s FTX digital assets exchange. SBF’s legal team had no shortage of material to work with, as prosecutors had coaxed a series of jaw-dropping revelations during their direct examination of Ellison.
Wednesday’s juiciest moments included Ellison relating how, in November 2021, SBF directed Alameda staff to pay $150 million—nearly 4x the $40 million previously described in the Department of Justice’s (DOJ) superseding indictment of SBF—to unspecified Chinese government officials to unfreeze around $1 billion in digital assets that were trapped on two China-based exchanges (Huobi and OKX).
This elaborate process—which also included Alameda’s other co-CEO Sam Trabucco—involved using the IDs of “Thai prostitutes” to open new accounts on Huobi/FTX to try to unstick the stuck assets. This episode was later obliquely referred to as ‘the thing’ on FTX/Alameda’s internal documents.
Ellison also claimed that SBF directed her to prepare as many as seven different versions of the infamous Alameda balance sheet that was later leaked and sparked FTX’s downfall. Incredibly, the version that leaked actually understated Alameda’s liabilities by billions of dollars.
One of these balance sheets was sent to Genesis Global Capital, the ‘crypto’ lending arm of Barry Silbert’s Digital Currency Group (DCG), a major Alameda creditor. SBF allegedly warned Ellison not to send an accurate balance sheet to Genesis based on fears that the lender might (a) call in its loans if it knew the dire state of things or (b) leak the information. Genesis has previously been flagged as a possible leaker of the balance sheet it received from Alameda, which was selected by SBF from the seven versions Ellison prepared.
Ellison testified that SBF had related a conversation he’d had with Matthew Ballensweig, Genesis’ then-managing director. Ballensweig allegedly told SBF that Genesis’s lending partners wanted their money back and Genesis ‘might go under’ unless Alameda returned $500 million of the money Genesis had lent Alameda. (The money was sent—part of a total of $4 billion in loans and collateral Genesis managed to successfully extract from Alameda—but Genesis still went bankrupt shortly after FTX did.)
Ellison also related how, as FTX’s financial situation worsened, SBF plotted ways of “getting regulators to crack down” on rival exchange Binance. In addition to SBF having a grudge against Binance founder Changpeng ‘CZ’ Zhao, SBF believed a crackdown might leave Binance’s customers adrift, creating an opportunity for FTX to acquire them—along with their digital assets and thus paper over the holes in FTX/Alameda’s books.
Finally, as the good ship FTX was floundering, SBF came up with a plan to raise $1 billion in additional capital from Saudi Arabia’s Crown Prince Mohammed bin Salman (MBS). Given MBS’s role in the murder of Washington Post journalist Jamal Khashoggi, SBF can count his lucky stars that he didn’t end up stiffing the vengeful monarch.
SBF’s team isn’t sending their best
As live-tweeted by Inner City Press, SBF’s team began their Thursday grilling of Ellison with a meandering series of questions regarding her co-workers and the nature of the business.
OK – SBF trial, Caroline Ellison on cross after China bribes involving Sam Trabucco & Thai prostitutes described, Inner City Press is covering the case https://t.co/aYIgtQrA3M & exhibits https://t.co/u4oPsv17a8 and will live tweet, thread below pic.twitter.com/sXzE7AjXkg
— Inner City Press (@innercitypress) October 12, 2023
As on previous days in this trial, a weary U.S. District Court Judge, Lewis Kaplan, admonished SBF’s attorneys to stop asking questions that prosecutors had already asked various witnesses. Kaplan also informed SBF’s attorney, Mark Cohen, that he’d “never seen the cross of a cooperator done like this.” It’s been suggested that SBF is already angling for a mistrial based on (a) Kaplan’s hostility or (b) the ineptness of his own counsel. At this point, our money is on the latter.
On Wednesday, Ellison revealed that by June 2022, Alameda had borrowed 77% of all FTX customer deposits for its own purposes, including 52% of all ETH held on FTX, 44% of the USDT (Tether) stablecoin and 25% of the BTC. Alameda also claimed all Australian dollars and BRZ (a token linked to Brazil’s fiat currency).
On Thursday, Ellison was presented with a document apparently detailing an internal conversation in which she suggested to another staffer that SBF “might not have known” about the extent to which Alameda had ‘borrowed’ FTX customer funds. Prosecutors objected to the vagueness of this statement, suggesting it needed further explanation, but SBF’s team simply dropped the matter and moved on to its next line of inquiry.
Ellison also revealed that Alameda lost $100 million when Terraform Labs’ algorithmic stablecoin UST and LUNA token abruptly tanked in spring 2022 (ultimately leading to the demise of SBF’s empire and much of the broader ‘crypto’ sector).
How many martinis did they have?
Following a lunch break, SBF’s team continued its scattershot approach, quizzing Ellison on numerous issues but never drilling down deep enough into any one subject to land any serious blows.
Before FTX went belly-up, SBF invested $400 million into Bahamas-based hedge fund Modulo Capital, which was run by another of SBF’s ex-girlfriends. In a document shown in court, SBF told execs at both Modulo and Alameda to quit bickering with each other. SBF reminded them that they should be “always doing what is best for the company,” implying that Alameda, Modulo, and FTX were a single entity. SBF added that they should be “treating all dollars the same,” whether those dollars belonged to Alameda, Modulo, or FTX (or its customers).
On Thursday, Ellison was asked if it was true that she wanted to “crush” Modulo, and she said she remembered “having feelings like that.” Ellison said she “didn’t think it made sense” for FTX to be investing $400 million in Modulo.
The court previously heard that, toward the end, SBF had considered shutting down Alameda and having Modulo take its place. It’s almost as if SBF’s team is now trying to make Ellison out to be a scorned woman who’d tank the whole operation rather than see her ex make goo-goo eyes at another woman. In reality, SBF’s team is likely convincing the jury that his people skills are even worse than they suspected.
Prosecutors conducted a brief redirect, including asking Ellison whether she believed FTX collapsed as a result of Binance’s CZ tweeting his intention to unload all of his FTT (FTX’s illiquid in-house token) following the leak of that Alameda balance sheet. Ellison said the tweet “contributed” to FTX’s downfall, but “the main reason was Alameda borrowing $10 billion from FTX it couldn’t repay.” (Rimshot!)
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
Ellison’s appearance was followed by former Alameda engineer Christian Drappi, who didn’t offer much significance to either side during his few minutes on the stand. Drappi was followed by Zac Prince, founder/ex-CEO of digital asset lender BlockFi, which went bankrupt last November despite SBF pretending for a while to be its white knight. Prince had only just sat down when Judge Kaplan called time, meaning the world would have to wait until Friday to hear his story.
FTX hackers Russia-based?
As SBF’s trial approached, blockchain sleuths observed significant movements in the hundreds of millions of dollars worth of tokens that were ‘hacked’ from FTX in the immediate aftermath of its bankruptcy. In late September, wallets linked to the ‘FTX Exploiter’ that had lain dormant for nearly a year suddenly began moving significant quantities of ETH. By October 6, around $124 million worth of this ETH had been swapped for BTC and moved off-chain.
Shortly after the FTX hack, some of the stolen assets were observed flowing into ChipMixer, an online tool that obfuscates the history of tainted tokens by mixing them with tokens with a more ‘clean’ history. ChipMixer was taken down in March following a joint operation by German and U.S. authorities after helping to launder around €2.73 billion over its six years of operation.
On Thursday, CoinDesk reported that Elliptic analysts believed that “significant amounts” of the FTX tokens had been “combined with funds from Russia-linked criminal groups, including ransomware gangs and darknet markets, before being sent to exchanges.”
Cleanup in aisle four
The November 2022 hack wasn’t the first time SBF’s operations had been compromised for millions. In August, former Alameda engineer Aditya Baradwaj began something of a public confessional on his Twitter/X feed, relating his initial experiences working at Alameda when it was still based in Berkeley. Baradwaj noted a distinct pattern of “irresponsibility” at Alameda, including “careless risk management for a company handling billions of dollars in capital.”
Baradwaj detailed a number of these embarrassing shortcomings, leading to a thread this week on Alameda’s “poor security practices” that led to the loss of “hundreds of millions of dollars.” This included an Alameda trader clicking on a phishing link while trying to complete a decentralized finance transaction that cost Alameda “$100M+.”
An attempt at “yield farming on a new blockchain of questionable legitimacy” led to the blockchain creator “holding our funds hostage,” resulting in a “$40M+” loss. Another incident was “likely” sparked by a former employee leaking an “old version of our plaintext keys file” that allowed an attacker to transfer funds without authorization, with the damage estimated at “$50M+.”
Baradwaj claimed these cockups were largely the result of SBF prioritizing speed of action over security. This meant “virtually no code testing and incomplete balance accounting[.] Safety checks for trading would only be added on an as-needed basis[.] Blockchain private keys and exchange API keys were stored in plaintext in a file that several employees could access”.
Even after nearly $200 million in losses, Baradwaj said SBF appeared to take it as the cost of doing business, given that there was “no serious attempt was made to change the way we operated.” It’s almost as if SBF’s whole ‘boy genius’ schtick was a fraud. Funny, that.
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